Direct answer
Tax planning should begin before a letter of intent fixes deal form, purchase-price allocation, payment timing, employment terms, or restrictive covenants. Early review cannot guarantee a result, but it preserves more choices and clarifies after-tax economics.
Clean the financial record first
Reconcile tax returns, financial statements, payroll, debt, owner activity, and proposed adjustments. A buyer will discount unclear earnings or shift risk into terms.
Model the entire consideration package
Cash at closing, escrow, earnouts, seller financing, retained receivables, assumed liabilities, post-sale compensation, and benefits may have different timing and risk.
| Term to review | Why it changes the seller analysis |
|---|---|
| Deal form | Can affect character, timing, liabilities, and buyer economics |
| Purchase-price allocation | Can change tax treatment across components |
| Earnout or seller note | Adds collection, timing, and documentation risk |
| Post-sale employment | Separates payment for future services from sale consideration |
| Retained receivables and liabilities | Changes cash conversion and post-close obligations |
Coordinate structure and allocation
Asset classes, ownership interests, goodwill, equipment, restrictive covenants, and employment arrangements can have different consequences. Legal drafting and tax reporting should tell the same economic story.
Plan from gross price to usable proceeds
Estimate transaction costs, debt payoff, taxes, reserves, timing, and household liquidity. The headline price is not the amount available for retirement or reinvestment.
Primary sources
Frequently asked questions
Can tax planning wait until the purchase agreement?
Waiting can leave fewer options because the letter of intent or negotiations may already have fixed important economics.
Is the highest purchase price always the best offer?
No. Payment risk, allocation, taxes, debt payoff, working capital, employment terms, and contingencies affect usable value.
Does this review replace transaction counsel?
No. CPA and legal review should be coordinated; legal counsel addresses agreements, liabilities, regulatory matters, and enforceability.